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BEC CH.2 Questions
| Question | Answer |
|---|---|
| The trough is characterized by: a.Shortages of raw materials & rising costs.b.Increasing purchasing power & increasing capital investments.c.Unused productive capacity & an unwillingness to risk invess. d.Declining purch power & unused product capacity. | CPA-03221 Explanation Choice "c" is correct. The trough of a business cycle is an economic low point with no positive indicators for the future. It is characterized by unused productive capacity and an unwillingness to risk new investments. |
| During a recession: a. Output (real GDP) will be increasing. b. The natural rate of unemployment will increase dramatically. c. Potential output will exceed actual output. d. Actual output will exceed potential output. | "c" is correct. During a recession, potential output (real GDP) will exceed actual output (real GDP). |
| A recession is: | A recession is defined as a period of falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a decrease in aggregate supply. |
| An expansion is: | A period during which real GDP is rising and unemployment is falling. |
| An increase in government spending will tend to cause: | An increase in government spending causes an increase in aggregate demand(i.e., causes the aggregate demand curve to shift right). As a result, an increase in government spending causes real GDP to rise and unemployment to fall. |
| An increase in the personal income tax will tend to cause: | An increase in the personal income tax will cause a decrease in aggregate demand(i.e., causes the aggregate demand curve to shift left). As a result, an increase in taxes causes real GDP to fall and unemployment to rise |
| What is the normal sequence of a business cycle? | 1. Expansionary 2. Peak 3. Contractionary 4. Trough 5. Recovery |
| Which one of the following is most likely to accompany a reduction in aggregate demand? a. An increase in the price level. b. A decrease in employment. c. An increase in real GDP. d. A decrease in the unemployment rate. | Choice "b" is correct. As aggregate demand falls, the unemployment rate rises so employment would decrease. |
| If an economy is currently experiencing both full employment and price stability, a major tax reduction will probably cause: | An acceleration in the inflation rate, unless government expenditures are also reduced. A tax cut shifts the aggregate demand curve to the right causing the price level and therefore the inflation rate to rise. |
| A large increase in nominal wages, perhaps orchestrated by unions, would most likely result in: | An increase in nominal wages represents an increase in input costs. This would shift the aggregate supply curve to the left resulting in a decrease in real GDP and an increase in the overall price level. |
| Economic fluctuations (or business cycles) are best described as: | Fluctuations in the level of economic activity, relative to a long-term growth trend. |
| At the peak of a business cycle: | The peak of a business cycle marks the highest point of economic activity. At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level. |
| A period of inflation will: | A period of inflation increases the price level, which is negatively related to the purchasing power of money (inflation erodes the value of money). |
| Which of the following is not consistent with full employment? a. An unemployment rate greater than zero. b. Structural unemployment. c. Cyclical unemployment. d. Frictional unemployment. | c. When the economy is operating at full employment, there is no cyclical unemployment. When the economy is operating at full employment, there is still some unemployment known as the natural rate of unemployment, does not include cyclical unemployment. |
| Cyclical unemployment results from: | Cyclical Unemployment is caused by seasonal decreases in demand for labor. It tends to rise during a recession and fall during an expansion. |
| A sharp rise in the price of oil (a major input), would result in: | Cost(Push) inflation. Caused by a shift left in aggregate supply. An increase in input costs, such as a sharp increase in the price of oil, will cause the aggregate supply curve to shift left and thus increase the aggregate price level causing inflation. |
| Frictional unemployment refers to unemployment resulting from: | Frictional unemployment is the unemployment that arises from workers routinely changing jobs or from workers being temporarily laid off. It results from the time needed to match qualified job seekers with available jobs. |
| Structural unemployment refers to unemployment resulting from: | The skills of workers do not correspond to the skills demanded by employers. |
| The measure most often used to compare standards of living across countries or across time is: | Real GDP per capita is real GDP divided by pop. Real GDP per capita is used to compare stds of living across countries or time. By div. real GDP by pop., this measure adjusts for diffs. in the size of countries & for diffs. in population over time. |
| The determination of gross domestic product (GDP) by the expenditure approach would include: | The expenditure approach to computing GDP includes: Consumption Net exports Government expenditures Capital Investments |
| Under the expenditure approach, GDP can be calculated as the sum of: | Under the expenditure approach, GDP is calculated as the sum of: consumption expenditures + investment expenditures + government purchases + net exports. |
| The discount rate set by the Federal Reserve is the: | The discount rate refers to the rate established by the Federal Reserve for shortterm (often overnight) loans the Fed makes to member banks |
| All of the following are tools that the Federal Reserve Bank uses to control the supply of money,except: a. Selling government securities. b. Changing the reserve ratio. c. Raising/lowering the discount rate. d. Printing money when the supply appears | (d) The treasury prints money. The Fed must increase the money supply through: 1. Federal open market committee (FOMC) purchasing or selling government securities, 2. Raising or lowering the discount rate, or 3. Changing the reserve ratio. |
| To decrease the money supply, the Fed might: | To decrease the money supply, the Fed can: (1) sell government securities in the open market, (2) increase the discount rate, and (3) increase the required reserve ratio. |
| What are three ways to increase the Money Supply? | The three ways the Fed can increase the money supply are: (1) buy (purchase) government securities in the open market, (2) lower the discount rate, and (3) lower the required reserve ratio |
| Which would cause an increase in frictional unemployment in aneconomy? a. Invention that renders an industry obsolete b. downturn in aggregate business activity c. Increase in avg age of the work force d. Reduction in avg age of the work force | D. Younger workers tend to move between jobs more frequently |
| What would lead to a reduction in inflation? | Decreasing Aggregate Demand & Increading aggregate supply will reduce inflationary pressures. |
| What is the formula for "REAL Interest Rate"? | Nominal Interest Rate - Inflation Rate = Real Interest Rate |
| What is the formula for the expenditure approach to measure GDP? | GDP = Consumption + Investment + Government Spending + Exports - Imports. |
| What is excluded from unemployment figures? | It does not count retirees or stay at home parents. Unemployment only tallies workers actively seeking employment. |
| How do you calculate the inflation rate using the Consumer Price Index? | Inflation rate = %change in CPI x 100. |
| The inflation rate measures: | The rate at which the overall price level increases in the economy. |
| Stagflation refers to: | A combination of rising unemployment and a rising price level. Occurs when the economy suffers a recession that is characterized by falling output, rising unemployment and rising price level. |
| When the overall price level is rising, nominal interest rates tend to be: | Rising: The relationship between nominal interest rates & inflation can be seen by rearranging th equation for Real interest Rate: NIR = RIR + Inflation. If RIR do not change, a 1% increase in inflation rate will lead to 1% increase in NIR. |
| Inflation can be caused by: | Both an increase in aggregate demand and decrease in aggregate supply. |
| Name a preventative measure for a period of deflation. | Increase the money supply helps eliminate deflation. |
| Name the key assumptions for Perfect competition: | a. Customers are indifferent about which firm they buy from. b. The level of a firm's output is small relative to the industry's total output. d. There is freedom of entry into and exit out of the industry. |
| What are the characteristics of monopolistic competition: | The characteristics of monopolistic competition include: • Numerous firms with differentiated products. • Ease of entry - few barriers. • Firms exact some influence over price and market. • Non-price competition is frequent and critical. |
| Describe the characteristics of oligopolistic market: | • Few firms in the market • Significant barriers to entry • Differentiated products • Fixed (or semi fixed) prices • Kinked demand curves |
| What does the demand curve look like when a business has the ability to contol the price of the product it sells? | Faces a downward sloping demand curve.Only the firm in a competitve market is a price taker facing a horizontal demand curve at the market equilibrium price. |
| In competitive markets, an increase in an effective minimum wage will: | When the "minimum" wages are increased, employers may elect to hire fewer employees thereby increasing unemployment. |
| In a competitive labor market, a minimum wage that is set above the equilibrium wage will result in | a. A decrease in the quantity demanded of labor. b. An increase in the quantity supplied of labor. c. A decrease in total employment. |
| Under monopolistic competition, strategic plans focus on: | Under monopolistic competition, strategic plans include maintaining the market share (as with pure competition), but they also likely include plans for enhanced product differentiation & allocation of resources to advertising, product research, etc. |
| Under monopoly, strategic plans focus on: | Under monopoly, strategic plans ignore market share and focus on profitability from production levels that will maximize profits. |
| If demand is price inelastic, an increase in price will result in an _________ in total revenue. | If demand is price inelastic, an increase in price will result in an increase in total revenue (positive relationship). |
| If demand is price elastic, an increase in price will result in a __________ in total revenue. | If demand is price elastic, an increase in price will result in a decline in total revenue (negative relationship). |
| If demand is unit elastic, a change in price will have __________ effect on total revenue. | If demand is unit elastic, a change in price will have no effect on total revenue. |
| True or False: A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop. | False: A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a price floor. |
| True or False: The value chain starts with the firm and goes all the way through to the end users of the product. | False- Value chain's value starts w suppliers who provide the raw materials for a production process, continues w/ the firm & its strategic plan, continues w/ the value created by the customers, & then ends w/ the disposal and recycling of the materials. |
| According to Michael Porter, which of the following are the two major categories of business activities? | According to Michael Porter, the two major categories of business activities are primary activities and support activities. |
| Which of the following activities is considered a support activity? a. Delivery of products. b. Procurement of materials. c. Product advertising. d. In-home warranty service. | B-Support activities are those activities that are performed by the support staff of an organization (e.g., purchasing of materials and supplies, development of the technology used,management of employees, accounting, finance, strategic planning, etc.). |
| What is Vertical linkage analysis? | Analyzing the vertical linkage of a firm means understanding the activities of the suppliers and buyers of the product and determining where value can be created external to the firm's operations. |
| What are the three major types off Strategic frameworks? | the three major types of strategic frameworks that have been proven to be useful for value chain analysis are industry structure analysis, core competencies analysis, and segmentation analysis. |
| Describe Core competencies analysis. | Analysis of the core competencies of a firm help it to determine why it is able to create, attain, and sustain new types of competitive advantage and profits and reveal what it is within the firm that enables it to obtain competitive advantage. |
| Describe Industry Structure analysis: | Industry structure analysis assists in determining what it is that makes a firm more profitable compared to another firm, and it looks at five forces that influence profitability of an industry or market and, thus, the competitive environment. |
| Describe Segmentation analysis: | Segmentation analysis is a possibility when a firm is vertically integrated and when the industry structure and core competencies vary among activities in the value chain. |
| When does competition not become an even stronger force impacting the profitability of a firm? | The market is fast-growing. It is not a factor that would cause market competitiveness to be even stronger. |
| Situations that would cause competition to be an even stronger force impacting the profitability of a firm: | • Market isn't growing fast • Several = sized firms in market • Customers - no strong brand preferences • Costs of exiting market exceed costs of contin. to operate • Firm moves to increase market share • Various firms use diff. types of strategic plans |
| What are some factors that increases the bargaining power of the cutomers? | • Customers make up a large volume of a firm's business. • There is much information available to customers. • The buyers have low switching costs. • There are a high number of alternate suppliers. |
| Considering the SCOR Model of supply chain operations, which of the following key management processes does implementing changes in engineering fall into? a. Plan. b. Source. c. Make. d. Deliver. | Choice "c" is correct. The "make" process encompasses all the activities that turn the raw materials into finished products that are produced to meet a planned demand. Implementing changes in the engineering process falls into the "make" process. |
| Considering the SCOR Model of supply chain operations, which of the following key management processes does managing accounts receivable and collections from customers fall into? a. Plan. b. Source. c. Make. d. Deliver. | D - The "deliver" process encompasses all the activities of getting the finished product into the hands of the ultimate consumers to meet their planned demand. Managing accounts receivable and collections from customers falls into the "deliver" process. |
| Considering the SCOR Model of supply chain operations, which of the following key management processes does assessing the ability of the suppliers to supply resources fall into? a. Plan. b. Source. c. Make. d. Deliver. | A-The process of planning consists of developing a way to properly balance AD & AS within the goals & objectives of firm & plan for the necessary infrastructure. Assessing the ability of suppliers to supply resources is part of the "plan" process. |
| Considering the SCOR Model of supply chain operations, which of the following key management processes does collecting and processing vendor payments fall into? a. Plan. b. Source. c. Make. d. Deliver. | "b" is correct. Once demand has been planned, it is necessary to procure the resources required to meet it and to manage the infrastructure that exists for the sources. Collecting and processing vendor payments falls into the "source" process. |
| What is Integrated Enterprise stage off supply chain management? | The firm's management will move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards the main business issue of the cost of customer service. |
| What is Cross Functional Teams? | The firm's management will turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, and the focus will be on customer service. |
| What is Extended Supply Chain? | integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth. |
| What is Supply Chain Communities? | In the supply chain communities stage of supply chain management, the extended supply chain forms a single competitive entity with a synchronized supply chain and a complex system of networks. |
| In which stage of supply chain management will integration move external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth? | In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth. |
| In which stage of supply chain management will integration move external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth? | In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth. |
| In which stage of supply chain management will integration move external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth? | In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth. |
| What is the fundamental law of demand? | The fundamental law of demand holds that there is an inverse relationship between price of the product and the quantity demanded. |
| A basic determinant of the elasticity of demand for a normal good is the: | Number of substitutes available for the product.The change in demand for a product, based upon a given change in that product's price, is dependent on whether or not other (presumably cheaper) goods can be substituted for the product. |
| If the elasticity of demand for a normal good is estimated to be 1.5, then a 10% reduction in its price would cause: | Elasticity of demand is calc. as: %Change in demand/%Change in price If elast of D is 1.5,then a 10% price reduction causes increase in the Q demanded by 15% -ratio of 15 to 10 or 1.5. |
| In the pharmaceutical industry where a diabetic must have insulin no matter what the cost and where there is no substitute, the diabetic's demand curve is best described as: | When a good is demanded, no matter what the price, demand is described as perfectly inelastic. The demand "curve" is a vertical line at the quantity demanded with price making no difference. |
| Which of the following inputs would be most beneficial to consider when management is developing the capital budget? a. Supply/demand for the company's products.b.Current product sales prices and costs. c.Wage trends. d.Profit center equipment requests. | D-In developing its capital budget, management would find the employee input associated with eqpmt requests from various profit centers most helpful.Departmental requests would provide key insights into the cap. req. of the business that aren't known. |
| Which of the method is designed to measure transaction exposure in terms of the maximum one day loss related to holdings denominated in foreign currency? | The value at risk method seeks to quantify the exposure of business to a one day loss in the value of its positions in foreign currencies. |
| Universal Industries limits its operations to exports to foreign countries. What can be said about Universal's exposures to exchange rate risk? | subject to trans risks associated with settlmt of export trans & subject to economic risks associated w the satisfaction of domestic exp denominated in domest $ w/ imported rev denom in foreign $. No transl. exposure exists bc no foreign inv. or subs. |
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sophanna